Rambus (RMBS) Q3 2025 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Monday, Oct. 27, 2025, at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Luc Seraphin
• Chief Financial Officer — Desmond Lynch

Need a quote from a Motley Fool analyst? Email [email protected]

TAKEAWAYS

• Total revenue -- $178.5 million in non-GAAP revenue for the fiscal third quarter ended September 30, 2025, above internal expectations.
• Product revenue -- $93.3 million in non-GAAP product revenue, a record result with 15% sequential growth and 41% year-over-year growth, driven by DDR5 and new products.
• Royalty revenue -- $65.1 million in non-GAAP royalty revenue.
• Licensing billings -- $66.1 million, with timing differences explaining the mismatch.
• Contract and other revenue -- $20.1 million in non-GAAP revenue, primarily from Silicon IP.
• Operating costs (non-GAAP) -- $99.3 million, including cost of goods sold and reflecting disciplined investment in growth opportunities.
• Operating expenses -- $64.6 million in non-GAAP operating expenses to support ongoing expansion initiatives.
• Interest and other income -- $6 million recorded.
• Non-GAAP net income -- $8.2 million after applying a 20% flat tax rate.
• Cash, cash equivalents, and marketable securities -- $673.3 million at quarter end, up from the prior quarter.
• Inventory growth -- $6 million increase in inventory to support anticipated fiscal fourth quarter demand; no notable build-up in customer inventory reported.
• Capital expenditures -- $8.4 million.
• Depreciation expense -- $8 million.
• Free cash flow -- $80 million.
• Fiscal fourth quarter revenue guidance -- $184 million to $190 million, with royalty revenue forecast between $59 million and $65 million.
• Fiscal fourth quarter non-GAAP operating profit guidance -- $81 million to $91 million.
• Fiscal fourth quarter non-GAAP EPS guidance -- $0.64 to $0.71.
• Diluted share count -- 109.5 million diluted shares expected.
• Product revenue growth outlook -- Anticipated to exceed 40% full-year product revenue growth in 2025 based on ongoing DDR5 market share and ramping new products.
• DDR5 market share range -- Early 40% previously disclosed, with further growth expected; long-term corporate objective remains 40%-50% share.
• PMIC revenue mix -- Progression from low single digits in fiscal second quarter to mid-single digits in fiscal third quarter of product revenue contribution; expected at a mid- to high-single-digit percentage in fiscal fourth quarter non-GAAP product revenue.
• Silicon IP business momentum -- Led by HBM4, GDDR7, and PCIe7, with management on track for double-digit annual growth targets.
• MRDIMM TAM estimate -- Approximately $600 million identified; MRDIMM margin is guided to align with the overall product business average of 60%-65% (long-term goal).
• Channel expansion tailwind -- Higher channel and DIMM count per server seen as incremental tailwinds for product demand and TAM.
• Inventory strategy -- Planned further internal inventory builds for fiscal fourth quarter to support projected fiscal first quarter 2026 demand.

SUMMARY

Rambus (RMBS +7.63%) delivered record product revenue in the fiscal third quarter ended Sept. 30, 2025, with management attributing growth to DDR5 leadership and new product launches. The company highlighted robust customer adoption for high-end PMICs and complete chipsets, emphasizing strategic strength in interoperability for complex memory systems. Forward guidance set high expectations for revenue, profitability, and further share gains in the upcoming fiscal quarter.

• CEO Seraphin said, "Looking forward, we expect our continued RCD market share leadership and increasing contributions from new products to drive full-year product revenue growth of over 40%."
• Management stated that MRDIMM volume ramps will align with next-generation AMD and Intel platform rollouts, targeting significant share capture by 2028.
• The silicon IP business is leveraging demand for PCIe7, HBM4, and GDDR7, supporting momentum in design wins for AI and high-performance computing segments.
• Management reiterated that MRDIMM profitability is "within the same sort of margins of our product business," emphasizing 60%-65% long-term margin targets.
• Desmond Lynch reported, "we saw no notable inventory build," in customer channels, attributing current lean positions to multi-generational DDR5 deployment and prior DDR4 overhang clearing.
• MRDIMM complexity is expected to drive greater chip content per module, positioning the company for a potential increase in average dollar content.

INDUSTRY GLOSSARY

• RCD (Registered Clock Driver): A buffer chip used on server memory modules (DIMMs) to support higher capacity and speed, critical in DDR5 and MRDIMM modules.
• PMIC (Power Management Integrated Circuit): Semiconductor devices managing power delivery on memory modules, essential for efficient DDR5 and high-density MRDIMM operations.
• MRDIMM (Multiplexed Rank Dual Inline Memory Module): Advanced server memory architecture doubling bandwidth and capacity over standard RDIMM by employing multiple ranks.
• JEDEC: The global standards organization for the microelectronics industry governing DDR and LPDDR memory module standards.
• Silicon IP (SIP): Intellectual property blocks used in SoCs and ASICs, including high-speed interconnect, memory, and security functions.

Full Conference Call Transcript

Desmond Lynch: Thank you, operator. And welcome to the Rambus Third Quarter 2025 Results Conference Call. I am Desmond Lynch, Chief Financial Officer at Rambus, and on the call with me today is Luc Seraphin, our CEO. The press release for the results that we will be discussing today has been filed with the SEC on Form 8-K. We are webcasting this call along with the slides that we will reference during portions of today's call. A replay of this call can be accessed on our website beginning today at 5 PM Pacific time.

Our discussion today will contain forward-looking statements, including our expectations regarding projected financial results, financial prospects, market growth demand for our solutions, other market factors, including reflections of the geopolitical and macroeconomic environment, and the effects of ASC 606 on reported revenue amongst other items. These statements are subject to risks and uncertainties that may be discussed during this call and are more fully described in the documents we file with the SEC, including our 8-Ks, 10-Qs, and 10-Ks. These forward-looking statements may differ materially from our actual results, and we are under no obligation to update these statements.

In an effort to provide greater clarity in the financials, we are using both GAAP and non-GAAP financial presentations in both our press release and on this call. A reconciliation of these non-GAAP financials to the most directly comparable GAAP measures has been included in our press release in our slide presentation and on our website at rambus.com on the Investor Relations page under Financial Releases. In addition, we will continue to provide operational metrics such as licensing billings to give our investors better insight into our operational performance. The order of our call today will be as follows. Luc will start with an overview of the business, I will discuss our financial results.

And then we will end with Q&A. I'll now turn the call over to Luc to provide an overview of the quarter. Luc?

Luc Seraphin: Thank you, Desmond. Good afternoon, everyone, and thank you for joining us. Rambus delivered a very strong third quarter with solid sequential growth and revenue above expectations. Product revenue led the way with a double-digit increase and growth that outpaced the market. This was driven by sustained market leadership in DDR5 products coupled with ramping contributions from our suite of new products. We also delivered another quarter of excellent cash from operations, highlighting the strength of our balanced business model, while we continue to execute on our strategic roadmap.

Leveraging our core expertise in signal and power integrity, our strategic focus on delivering complete solutions for high-performance memory subsystems positions us well amid strong secular trends in data center and AI markets. Turning to our businesses, I'm extremely pleased with the performance of our chip business. In Q3, we delivered another product revenue record at $93 million and marked our sixth consecutive quarter of growth. As a cornerstone of our success, our DDR5 RCD leadership and ongoing market share gains continue to fuel our top-line growth. In addition, customer adoption of new products is progressing well, with initial production shipments now in motion.

Looking forward, we expect our continued RCD market share leadership and increasing contributions from new products to drive full-year product revenue growth of over 40%. Our broad product offering, including chips for all JEDEC standard DDR5 and LPDDR5 modules, supports the full spectrum of high-performance computing platforms in servers and client systems. Our full chipset solutions offer customers not only the ease of one-stop shopping but also the greater assurance of interoperability which becomes ever more critical as the complexity of design rises alongside data rates. Through ongoing leadership in our cities, and growing traction across our portfolio of new products, we expect continued momentum and long-term growth. Turning to Silicon IP, AI continues to drive design win momentum.

The increasing pace and diversity of AI accelerator and networking IC designs is driving demand for high-speed memory interconnect and security IP. Led by our best-in-class HBM4, GDDR7, and PCIe7 solutions, our IP is critical to enabling the performance and security required by AI training and inference workloads. Focused on providing our customers with differentiated features, and performance for the most challenging applications, we see momentum across our portfolio of cutting-edge solutions, and we remain on track for our long-term growth targets. As we look ahead, the rapidly rising adoption of AI is driving continued server growth. Training and inference require massive compute infrastructure to support increasingly complex and diverse workloads.

Notably, AdjunctIQ AI is emerging as a major catalyst for server demand, particularly for traditional CPU-based systems. This is helping to fuel the ongoing hyperscaler and enterprise refresh cycle, amplifying the growth in server unit shipments. In addition, the amount of memory per server continues to grow. AI workloads demand unprecedented levels of compute performance, driving increasing core counts and the need for more memory bandwidth and capacity. This translates to more DIMMs per server at higher data rates as well as the need for novel high-performance memory solutions and enabling technologies. MRDIMM is a great example of this, as it leverages an innovative architecture to double the capacity and bandwidth versus standard RDIMMs.

Scaling the amount of memory per server also creates demand for increasingly sophisticated power management solutions, that optimize the efficiency and quality of power delivery. We solve these complex problems for our customers with leading-edge products and are pleased to be on track to intercept compatible future generation systems with our complete industry-standard MRDIMM and RDIMM chipsets. Going beyond servers, the release of each new client platform continues the trend of server-class technologies waterfalling into AIPCs as performance targets continue to rise. This drives demand for faster memory and more module chip content.

Leveraging our fundamental signal and power integrity building blocks, our client chipsets are progressing well with growing customer traction and we look forward to meeting this rising market need. The secular growth trend in data center as well as the rising performance requirements across the computing driven by AI, are highly favorable to Rambus. And align directly with our long-term strategy. Our groundbreaking memory connectivity and power management are foundational to enabling the next generation of AI and HPC platforms by advancing system memory bandwidth and capacity capabilities. Having identified the increasing technical demands of data-intensive applications as opportunities, we have developed a roadmap that builds on our leadership in signal and power integrity to enable robust high-performance memory subsystems.

In closing, Q3 was a very strong quarter with solid financial results. Our continued product leadership in DDR5 and increasing momentum in new products are underpinned by the company's strong alignment with positive secular trends in data center and AI. This gives us great confidence in our ongoing success and our ability to deliver long-term profitable growth. As always, I want to thank our customers, partners, and employees for their continued support. And with that, I'll turn the call over to Desmond to walk us through the financials. Desmond?

Desmond Lynch: Thank you, Luc. I'd like to begin with a summary of our financial results for the third quarter on Slide three. We are pleased with our strong Q3 financial results as we continue to execute on our strategic initiatives. As Luc mentioned earlier, we continued our market leadership position in DDR5 products and have started to see increasing from our suite of new products. Our diversified portfolio continues to deliver strong results which led to outstanding cash generation in the quarter of $88 million which further strengthened our balance sheet. Our consistent ability to generate cash allows us to strategically invest in our product roadmap to drive our long-term growth.

Let me now provide you a summary of our non-GAAP income statement on Slide five. Revenue for the third quarter was $178.5 million which is above our expectations. Royalty revenue was $65.1 million though licensing billings were $66.1 million. The difference between licensing billings and royalty revenue mainly relates to timing as we do not always recognize revenue in the same quarter as we bill our customers. Product revenue was $93.3 million as we delivered another quarter of record product revenue. This represents a 15% sequential increase and a 41% year-over-year growth driven by continued strength in DDR5 products, and ramping new product contributions. Contract and other revenue was $20.1 million consisting predominantly of Silicon IP.

As a reminder, only a portion of our Silicon IP revenue is reflected in contract and other revenue and the remaining portion is reported in royalty revenue as well as in licensing billings. Total operating costs, including cost of goods sold for the quarter were $99.3 million. Operating expenses were $64.6 million as we continue to invest in our growth opportunities in a disciplined manner. Interest and other income for the third quarter was $6 million. Using an assumed flat tax rate of 20%, for non-GAAP pretax income, non-GAAP net income for the quarter was $8.2 million. Now let me turn to the balance sheet details on Slide six.

We ended the quarter with cash, cash equivalents, and marketable securities totaling $673.3 million. Up from Q2 primarily driven by strong cash from operations at $88.4 million. Third quarter capital expenditures were $8.4 million while depreciation expense was $8 million. We delivered $80 million of free cash flow in the quarter. Let me now review our non-GAAP outlook for the fourth quarter on Slide seven. As a reminder, the forward-looking guidance reflects our current best estimates at this time and our actual results could differ materially from what I'm about to review. The economic environment remains a dynamic environment, and we continue to actively monitor this situation.

In addition to the non-GAAP financial outlook under ASC 606, we also provide information on licensing billings which is an operational metric that reflects amounts invoiced to our licensing customers during the period adjusted for certain differences. We expect revenue in the fourth quarter to be between $184 million and $190 million. We expect royalty revenue to be between $59 million and $65 million and licensing billings between $60 million and $66 million. We expect Q4 non-GAAP total operating costs, including COGS, to be between $103 million and $99 million. We expect Q4 capital expenditures to be approximately $10 million. Non-GAAP operating results for the fourth quarter are expected to be between a profit of $81 million and $91 million.

For non-GAAP interest, and other income and expense, we expect $6 million of interest income. We expect the pro forma tax rate to be 20% with non-GAAP tax expenses to be between $17.4 million and $19.4 million in Q4. We expect Q4 share count to be 109.5 million diluted shares outstanding. Overall, we anticipate the Q4 non-GAAP earnings per share range between $0.64 and $0.71. Let me finish with a summary on slide eight. In closing, our team delivered strong third-quarter financial results. Setting another record for product revenue and continued strong cash generation. Our robust balance sheet continues to allow us to invest in market expansion opportunities.

Our product portfolio including Silicon IP and chip solutions, is strategically aligned to capitalize on the growing opportunities in data center and AI. Before I open up the call to Q&A, I would like to thank our employees for their continued teamwork and execution. With that, I'll turn the call back to our operator to begin Q&A. Could we have our first question? Thank you.

Operator: Ladies and gentlemen, as a quick reminder, if you have a question, please press 1 on your touch-tone phone. The first question comes from Tristan Gerra with Baird. You may proceed.

Tristan Gerra: Hi. Good afternoon. You recently quantified the MRDIMM TAM opportunity. Is it fair to assume you can replicate the market share with MRDIMM that you have currently in DDR5? And also, when do you think you can fully realize the time that you qualify for MRDIMM? Is that something that we could envision for '28?

Luc Seraphin: Hi, Tristan. Thank you for your question. We're very pleased with the progress we're making with the MRDIMM development. We do believe that with time in the long run we can reach similar market share as we have with the DDR market share we currently have on DDR5. The timing of that really depends on the rollout of platforms from our main partners on the CPU side, Intel and AMD. But to the extent that they roll out their platform, I think it's fair to say that we're going to ramp in large volumes towards the very end of '26 and probably '27. So '28 is probably a good time to look at this type of market share.

The other thing I would add regarding MRDIMM is that it's a much more complex system. And because of the system requirements, we will need a tight coupling of the chips on that MRDIMM. So there's an opportunity for us to have more content as the interoperability of all those chips on that MRDIMM is going to become very critical.

Tristan Gerra: Great. And then as a quick follow-up, regarding the recently announced Ethernet scale-up networking architecture at OCP, does that provide the opportunities for Rambus on the licensing side?

Luc Seraphin: Thank you, Tristan. Our SIP portfolio is very focused on high-speed memory and high-speed interconnect and security. Certainly, with our networking customers and our memory customers, we are on the leading edge of technology, whether it is on GDDR and HBM on the memory side or PCIe7 on the networking side. What we've seen recently is an acceleration of demand for the latest technology. The transition from PCIe5 to PCIe7 is moving very, very fast. And that's certainly an opportunity for us.

Tristan Gerra: Great. Thank you very much.

Luc Seraphin: Thank you.

Operator: The next question comes from Aaron Rakers with Wells Fargo. You may proceed.

Aaron Rakers: Yes. Thanks for taking the questions. I've got a couple as well. I guess, first, kind of sticking on the technology evolution of what we're seeing some of these processors is there's a lot of news recently around the move towards SOCAM and SOCAM2 in particular is getting JEDEC standardization. Can you help us maybe think about Rambus' opportunity set in SOCAM2 modules and when maybe would expect to see that in any kind of framing of kind of the dollar content opportunity on those modules?

Luc Seraphin: Thank you, Aaron. The first thing I would say is that we are excited to see the emergence of these new architectures that actually play on our strength and focus in signal integrity and power integrity. As you know, the first attempt at SOCAM didn't work that well and as a reminder, the attempt was actually to take benefit of the low power and high bandwidth of LPDDR, but to put these on modules. And when you put these on modules, you actually break the signal integrity and the reliability of the system. So we are pleased to see those efforts going into JEDEC because I think the industry is eventually going to resolve those issues.

And as a reminder, as we said in our remarks, we currently have solutions for all JEDEC module systems both for LPDDR and DDR and both for clients and servers. So the fact that it's going through JEDEC is actually good news for us. There will be opportunity for us, certainly opportunity for the SPD hub chip. There's going to be some development on voltage regulators but as we said, power management is also something we focus on. So we see this as an opportunity. We don't expect the volumes to be very high. These things actually go into system-on-chip solutions, very tight systems where the volumes are not necessarily very, very high.

It's early to say what the content is going to be. But that's certainly an area we're going to play in given that the company focuses on both the signal integrity and power integrity. And the fact that it's moving to JEDEC is good news for us.

Aaron Rakers: Yep. Very good. And then maybe as a follow-up to that answer is on the PMIC side, your product chipset business did really well this quarter growing over 40%. It looks like that appears to be sustainable as we look forward. How do we think about the opportunity of PMIC? How much does that represent of your product chipset business today? And maybe unpack how quickly you're seeing that ramp looking forward.

Luc Seraphin: Thank you, Aaron. The way we look at these products is we have a whole suite of new products including the PMICs, and the PMICs is actually a suite of products. If you remember the product announcements we've made over the last few years, we have the first generation of Phoenix family announced in Q2 of last year, the clock driver announced in Q3, then we have the second generation of PMIC announced in Q4, as well as Gen two RCDs and MRDIMM. And this year, in Q2, we announced a family of PMICs for the client space. So what you see is we do have a whole suite of products that are companionship.

We're pleased with the progress this year, in Q2 these chips represented low single-digit contribution to our product revenues. As we indicated, Q3 was on track with mid-single digit. And in Q4, it's going to be mid to high single digits. So in aggregate, we're pleased with the momentum. But it's not going to be a step function. We have different stages of qualification and preproduction, on different modules and different platforms. Current platforms and future. We have products that are in early qualification, we have products that are in pre-production, and we have products that are in full production now. But there's a strong momentum.

And as these products intercalate through the ecosystem, we do believe that we're going to continue to see growth. Now specifically to PMIC, what we have observed is that we have lots of success with a very high-end PMIC. There's a lot of excitement there. They are the most complex PMICs to make. But they're also the ones that are showing the best performance compared to our competition. So that's exciting for us. These very high-end PMICs are going to be linked to next generation with AMD and Intel. But we certainly have the early generation of PMICs also rolling out in the market.

So difficult to separate PMIC from the rest, as I said, we have many products at many stages of development. With our customers but what we see is very strong momentum to grow that revenue quarter over quarter given the progress we're making.

Aaron Rakers: Yep. Thank you very much.

Luc Seraphin: Thank you.

Operator: The following comes from Gary Mobley with Loop Capital. You may proceed.

Gary Mobley: Good evening, guys. Let me extend my congratulations to the solid results and want to start asking about any sort of supply chain considerations first on your side. Do you see any extension of the order lead times that your customers are seeing that they place an order with you? Given any sort of constraints that TSMC may have, and then away from you, are you seeing any sort of impact on the market relating to any sort of constraints on high capacity server DIMMs or the DRAM that support that market considering most of the memory IDMs are prioritizing HPM at this point?

Desmond Lynch: Hi, Gary. Desmond here. Thanks for your question. My colors within the industry, we are carefully monitoring the supply situation. With regards to Rambus, I was pleased that we were able to grow our inventory in the quarter. We grew inventory by about $6 million, which will support our growth in Q4. In addition, I would highlight that we've not seen any notable buildup of customer inventory in the sort of third quarter. I'm really looking at our own supply chain and manufacture, in terms of front-end manufacturing, it's important to know that we are not on leading-edge technology nodes. And on the back end, we continue to have strong long-term relationships with our manufacturing partners.

And we do see some pockets of tightness, and we continue to work with our partners to improve the lead times there. And looking at Q4, I would expect to see a slight increase in our own internal inventory to support customers' Q1 2026 demand. I would say overall, we have a robust supply chain, which has enabled our strong product revenue growth. And we'll continue to work with our manufacturing partners to support our growth objectives going forward.

Gary Mobley: Got it. That's helpful. In the RCD market specifically, would assume that you're running about up or above 40% market share. Do you see a natural cap there given that this is more or less a three supplier market, maybe two additional suppliers in the nascent stages of their development? Do you see that as a natural cap or do we see maybe 45, 50% market share on the horizon?

Luc Seraphin: Thanks, Gary. You know what we said last year, in 2024, is that on the DDR5 generation, we were in the early 40% market share. We actually disclose market shares once a year because of some situations we have every quarter. But if you look at the current outlook for this year, it looks like we're going to continue to grow share. The market for servers or DIMMs has increased mid to high single digit. And, as Desmond indicated in his prepared remarks, we grew 40% year over year. So we have certainly gained share this year on this market, and we still believe we can continue to gain share. We always have the objective of 40% to 50%.

So there's room to gain share. We are also early in the DDR5 cycles, it's been three years in and we expect the DDR5 cycle to last about seven years. So we do expect to continue to have the possibility of winning share. The other thing is I think that when the products become more complex, and the interoperability becomes more complex as well, because we have a complete chipset that's going to help us continue to gain share. Certainly, there's going to be a cap but we don't see the cap in the near future at this point in time.

Gary Mobley: Thank you both.

Luc Seraphin: Thanks, Gary.

Operator: Thank you. The next question comes from Mehdi Hosseini with Susquehanna. You may proceed.

Mehdi Hosseini: Yes. Thanks for taking my question. This is for the team. I think it would be very helpful if you could remind us how to think about a different TAM and give us an update. In the past, we have talked about the buffer chip companion, CXL, and HBM IP. Perhaps with the diversification, the DRAM with inclusion of MRDIMM, there are some changes there and I and then in that context, it will be great if you could give us what the TAM will look like, let's say, two, three years from now. And I have a follow-up.

Luc Seraphin: Yeah. Thank you, Mehdi. So we'd like to separate the products from the silicon IP. On the product side, we estimate the TAM for the RCD market to be around $800 million. Then you add to this $600 million of companionships, half of it being power management chips and the other half being the other companion chips. And then you can think about the market growing mid to high single digits. In aggregate, there's additional, I would say, tailwinds to this with the increase of number of channels and the increase of number of DIMMs per channels, but this will translate into not into a step function, but some tailwinds to that TAM.

Then in addition to that, we see a TAM of about $600 million for the MRDIMM itself, which adds to this. But the MRDIMM, we discussed earlier, is not going to hit the market before very late in 2026, '27. Depending on the rollout of the platforms from AMD and Intel primarily. Now if you turn to the silicon IP business, it's hard to have a TAM number for the silicon IP business. What I would say is that as part of our portfolio, we are at the center of what matters for AI. Our portfolio is focused on PCIe7 and the future generation on HBM4 and future generations and on GDDR and future generations.

So there's a pool for design staff on all of these IP, but it's hard given the type of business model on the licensing side. It's hard to estimate a TAM for this. But what I would say is that we are on track to meet our growth targets in that business of double-digit growth.

Mehdi Hosseini: Okay. Great. So just a quick follow-up here. Should I assume that MRDIMM margin is comparable to product or would that be more like an IP type of margin?

Desmond Lynch: Hi, Mehdi. Desmond here. In terms of the MRDIMM, this is obviously a chip product that we will be selling here. What I would say is I would keep it within the same sort of margins of our product business. The long-term goal of that business is 60 to 65%. And I would keep the MRDIMM margins within that. We continue to produce strong margin results on the chip side, and we're really pleased with the portfolio that we have.

Mehdi Hosseini: Sure. Great. And my second question has to do with just looking beyond the December and seasonality. I'm under the impression that when it comes to servers and companionship, maybe there could be better than seasonal trend into the early part of 2026. And I want to see how you're looking at those trends. And I'm not asking for a guide. I'm not asking for a specific revenue guide, but just trend would better seasonal trend that I see in the server and AI would also apply to Rambus.

Luc Seraphin: Thank you, Mehdi. We do see the market for servers to continue to grow. Between mid to high single digit going into next year. There's some tailwinds, as we said, because of the growth of inference, for example, or AdjunctIQ AI that's going to create tailwinds for standard CPU types of solutions. But we still do see a growth between mid and high single digit for the server market next year. We have our customers being prudent with the inventory before the year-end, typically in Q4, and that happens every year. But that's included in our guide for example, for Q4 that we just gave. And things are going to be back on track in 2026.

We keep saying that one of the reasons we don't guide beyond one quarter is that things are changing very, very fast and visibility is not the best. But we do see all the favorable tailwinds for our business going into 2026.

Mehdi Hosseini: Thank you.

Luc Seraphin: Thank you.

Operator: The next question comes from Kevin Cassidy with Rosenblatt Securities. You may proceed.

Kevin Cassidy: Congratulations on the great results. Just looking at the market, the DRAM market and maybe Gary touched on it with the lead time stretching out and prices going up. Is there any concern at all of servers despecking as the price of DRAMs go higher or is the need for DRAM and AI applications so strong that there won't be a despec?

Luc Seraphin: Well, you know, that's a good question for the memory vendors. I would say that historically, we've been kind of agnostic to DRAM pricing. I think what the industry is going to have to go through is to deal with the growth of demand for data centers in general. And to have some arbitrage between the different types of memory. But I don't think that the DRAM pricing is going to have any impact on the demand for our products at Rambus.

Desmond Lynch: Thanks, Luc. And you could dive in, Kevin. You hear me?

Kevin Cassidy: Yes.

Desmond Lynch: Kevin, I would just add in the fact that the inventory levels within the channel continue to remain sort of lean. When I look at inventory in Q3 versus Q2, and this is if our chips that our customers are holding, we saw no notable inventory build, and I would really put that down to two factors. One, it's been the multiple generations of DDR5 been in the market. And really, the legacy overhang of over-ordering of DDR4 inventory from a couple of years ago. So I would say the inventory position just now is lean in terms of our sort chips.

Kevin Cassidy: Right. Okay. Great. And maybe just along that, you know, you mentioned you're two years into this DDR5 cycle and maybe it's three generations of DDR5 modules. What's the bell curve like of your shipments? And you know, what is that doing to ASPs as you go forward?

Desmond Lynch: Hey, Kevin. It's Desmond. You know, we've been really delighted with how we've been able to execute on the DDR5 cycle. You know, we're in the middle of a fast-paced DDR5 transition with multiple generations in the market today. I would say that in Q3, the predominance of our shipments was the second generation of DDR5. With growing in early production volumes of the third generation coming into the market. And as I look ahead into Q4, I would still expect the predominance to be the second generation with really growing contributions as the sub-generation coming into the market.

In terms of pricing, what we've talked about in the past is when we move from one generation to the next generation, we do see a bump up in pricing, which is obviously beneficial for us from there. And we'll continue to see that benefit going into the numbers. We saw the benefit in the gross margin outlook in the third quarter on the product chip side, which increased about 300 basis points. Which was really a combination of the product mix as well as continued manufacturing savings coming into the model. So overall, we're really pleased with how we're executing on the DDR5 generation and really irrespective of fourth generation is ramping into the market.

Through our early investment and continued leadership, we have confidence in our overall market share and leadership position.

Kevin Cassidy: Okay. Great. Thank you.

Desmond Lynch: Thanks, Kevin.

Operator: The following comes from Nam Kim with Arity Research. You may proceed.

Nam Kim: Hi. Thank you for taking my question. I want to ask about the outlook for CXL. There are a lot of perspectives on how this market develops, especially with the 3.1 expected next year, and your competitor like Montage, increasingly aggressive on the controller side. Now at the same time, greater adoption of MRDIMM in the future could address current memory capacity constraints. So can you share your view on how you see the CXL market evolving? And what the Rambus' strategy is in terms of controllers or other engagement in this space. Thank you.

Luc Seraphin: Thank you, Nam. We have two possible plays in CXL. One is on the silicon IP business. We do have CXL controllers of different generations, and this has been part of this focused portfolio we're talking about. Where we do have traction, a lot of people developing chips need a CXL interface and they have the possibility of buying that from us. So this has been one of the driver vectors of our growth in the silicon IP business. But what we have observed is that every one of our customers tends to develop a bespoke solution for one, sometimes only one or two customers. So the chips that use this CXL market is very fragmented.

That's how we look at it. And although we did have and we do have a CXL product development, we believe that this point in time that it does not make economic sense to actually roll out that product in the market. Because what we noticed is that we would have to develop a specific chip for a specific customer who then themselves would have a specific customer as well. So we'd rather play on the SIP side for the CXL. So what I would say is that CXL is very exciting in terms of being an interface that is accepted by everyone. But for us, it's not that exciting in terms of products.

And we do believe that the usage model that is the most promising is actually memory expansion. And to your question, a very good question, the MRDIMM mounts at that because it uses the current infrastructure of standard servers. And just by using this MRDIMM type of architecture, we can double the capacity and the bandwidth using that same infrastructure. So that's the option we've taken at this point in time. As the market develops as we've done in the past, we can pivot but at this point in time this is where we are.

Nam Kim: Thank you. It's clear. Thank you.

Luc Seraphin: Thank you.

Operator: The following comes from Kevin Garrigan with Jefferies. You may proceed.

Kevin Garrigan: Yeah. Hi, all. Let me echo my congrats on the results. Hey. On the MRDIMM opportunity, you talked about starting qualifications. I mean, is there anything more that you need to do or can do to kind of help yourselves capture share there, or is it pretty much all in the customer's hands at this point?

Luc Seraphin: It's in the customer's hands, our hands, and the hands of the people deploying the platforms like Intel and AMD. They have to be ready with their platforms as well. But I would say on our hand, what plays in our hand is really the fact that we have a complete chipset for MRDIMM. And that's critically important because when you double the capacity and you double the bandwidth, that interoperability is critical to the energy actually working. And I think that customers are going to be looking at their suppliers like us to really help them not only on the development of the chips but also on the testing of the whole platform.

Given how compact it's going to be and how fast it's going to have to run at. So this is what I think is going to play in our hands. The fact that we have invested a long time in signal integrity and power integrity, allows us to have a complete chipset, and having a complete chip is going to help us with interoperability testing with our customers.

Kevin Garrigan: Got it. Got it. Okay. That makes sense. And then as a quick follow-up, going off of a previous question in your silicon IP business. I know you guys are doing well in HBM, but can you just talk about how traction has been with PCIe7 and secured IP in that business?

Luc Seraphin: I'll start on this piece jump in. Typically, we don't split these things, but at a high level, security is about 50% of our business and between your controllers, memory controllers, the PCI controllers, that's the other 50%. I would say security is widespread in terms of its application. It's really going into lots of applications with lots of customers in very different markets. PCIe and HBM we tend to work with a large number of customers and much smaller and we tend to work on the bleeding edge solutions for these. So, we mentioned HBM4 and PCIe7.

So we typically work with large customers who need to develop the latest and fastest solution and mostly for data center and the AI market. So it's a different dynamic there. Typically we have higher ASP longer time development with the bleeding edge solution for memory and PCIe. It's a much broader and faster cycle in the security side. That's the way to look at it.

Kevin Garrigan: Okay. Perfect. Thank you, and congrats on the results.

Luc Seraphin: Thank you, Kevin.

Operator: Thank you. The final question is a follow-up from Aaron Rakers with Wells Fargo. You may proceed.

Aaron Rakers: Yes. Thanks for doing the follow-up question. Just kind of thinking back again to the architecture evolution in this AI demand that you're seeing. When you guys look at your RCD business today, how do you assess kind of the number of channels today that you're shipping into on a per socket or per CPU basis? And how that's evolved and whether or not, you know, moving from eight to 12 and do you see 12 going to channels as we look out into 2026?

Luc Seraphin: Thank you, Aaron. Certainly, AI workloads need more memory than standard types of applications and more bandwidth. So the very fact that the industry is converging to 12 channels is good. But remember, it's only lately that Intel moved to 12 channels. So it's going to have a modest impact, but positive impact. We do see these memory CPU vendors announcing the 16 channel solution, and that's going to be necessary. There's talk also no plans of going beyond maybe to 20. But the issue is, you cannot just add channels after channels. It creates constraints on the packaging designs or the chip designs. I see there's going to be a limitation there. But that's certainly a tailwind for us.

That's going to help us as we said earlier continue to grow our product business.

Aaron Rakers: And on that channel discussion, how does that work with MRDIMM?

Luc Seraphin: So the MRDIMM is going to intercept the next generation of platforms from AMD and Intel. These next-generation platforms from AMD and Intel, they're now 16 channels. But MRDIMM is a very dense solution. So the number of DIMMs per channel is going to be the question. But these new platforms for Gen five are going to be around 16 channels per CPU. And that's the generation that intercepts them all day.

Aaron Rakers: Right. Right. Thank you.

Luc Seraphin: Thank you.

Operator: I will now pass it back over to Luc for closing remarks.

Luc Seraphin: Thank you to everyone who has joined today for your continued interest and time. We look forward to speaking with you again soon. Have a very good day. Thank you.

Operator: Thank you. This now concludes today's conference.